Republic of the Philippines vs. Mega Pacific eSolutions Inc., Willy U. Yu, Bonnie S.

Yu,
Enrique Tansipek, Rosita Tansipek, Pedro Tan, Johnson Fong, Bernard Fong, and
Lauriano Barrios

June 27, 2016 / Sereno, C.J. / Rule 45 Petition for Review on Certiorari / Digest by Tenet Manzano /
Piercing the Corporate Veil

Petitioner: Republic of the Philippines

Respondent: MPEI, Willy U. Yu, Bonnie S. Yu, Enrique Tansipek, Rosita Tansipek, Pedro Tan, Johnson
Fong, Bernard Fong, and Lauriano Barrios
Summary: Contract between COMELEC and MPEI was pronounced void by the SC in a 2004 decision.
Current case is an offshoot of the 2004 decision, with the Republic seeking the return of the funds it has
already paid MPEI. Republic sought to have the properties of private respondents herein (incorporators of
MPEI) be preliminary attached. SC granted the petition and directed the RTC to issue a writ of preliminary
attachment.
Doctrine: A corporation’s privilege of being treated as an entity distinct and separate from its stockholders
is confined to legitimate uses, and is subject to equitable limitations to prevent its being exercised for
fraudulent, unfair, or illegal purposes. When the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of
persons.

Facts:

1. Present case is an offshoot of the 2004 decision Information Technology Foundation of the
Philippines vs. COMELEC. The facts of that case are as follows:
a. COMELEC attempted to implement an automated election system for the 2004 elections.
For this purpose, it invited bidders to apply for the procurement of supplies, equipment,
and services.
b. Mega Pacific eSolutions Inc (MPEI), as lead company, purportedly formed a joint
venture – known as Mega Pacific Consortium (MPC) – together with WeSolv, SK C&C,
ePLDT, Election.com, and Oracle. On behalf of MPC, MPEI submitted its bid proposal
to COMELEC.
c. Eventually, COMELEC awarded to MPC the automation project. Despite the award to
MPC, however, COMELEC executed the automation contract with MPEI for more or
less P1.2 Billion. Pursuant to the contract, MPEI delivered 1,991 machines to
COMELEC. The latter, for its part, made partial payments to MPEI in the aggregate
amount of P1.05 Billion.
d. Said contract was assailed in the aforementioned decision. In it, the Supreme Court
declared the contract null and void, citing the following instances:
i. COMELEC awarded the project to MPC, but entered into the actual contract with
MPEI, a company which did not meet the eligibility requirements.
ii. COMELEC accepted and paid for MPEI’s machines that had failed the accuracy
requirement of 99.9995% set up by the COMELEC bidding rules. The Court
noted that this requirement was in fact too steep, and that this is part of a scheme
of requiring very high standards or unrealistic specifications that cannot be met,
only to water them down after the award is made. Such scheme discourages the
 entry of bona fide bidders, and is in fact a sure indication of fraud in bidding,
designed to eliminate fair competition.
iii. The software program several tests, including the detection of previously
downloaded precinct results and the printing of audit trails without loss of data,
which were mandatory requirements.
2. From the declaration of nullity of the automation contract, several cases and incidents emerged,
one of which is the case at bar.
a. In the present case, MPEI filed a complaint for damages before the RTC Makati, arguing
that notwithstanding the nullification of the automation contract, the COMELEC was still
bound to pay the amount of P200M representing the balance remaining from the contract.
b. Petitioner Republic (petitioner) argued that MPEI could no longer recover the unpaid
balance from the void automation contract. By way of counterclaim, petitioner demanded
from respondents the return of payments made. Additionally, individual respondents,
being the incorporators of MPEI, were likewise impleaded to be held accountable for
MPEI’s liabilities. Pursuant to this, petitioner prayed for the issuance of a writ of
preliminary attachment against the properties of MPEI and the individual respondents.
3. RTC denied the prayer for the issuance of writ of preliminary attachment, ruling that there was an
absence of factual allegations as to how the fraud was actually committed. CA initially reversed
and granted the writ, but upon MR, remanded the case back to the RTC for reception of evidence
of allegations of fraud and to determine whether attachment should necessarily issue.
Hence, this petition.

Issues & Held:

1. Whether petitioner has sufficiently established fraud on the part of the respondents to justify the
issuance of the writ—YES
2. (relevant) whether a writ of preliminary attachment may be issued against the properties of
individual respondents, considering that they were not parties to the 2004 case—YES

Ruling: Petition Granted; CA decision set aside; RTC directed to issue the writ of preliminary attachment
as prayed for by the petitioner.

Ratio:

1. (I’ll just condense this because this is not the relevant part of the case) Fraud on the part of MPEI was
sufficiently established by the factual findings of the SC in the 2004 decision and the subsequent
pronouncements.
a. Writ of preliminary attachment: provisional remedy where the properties of the defendant
may be levied upon and held thereafter by the sheriff as security for the transaction of
whatever judgment might be secured by the attaching creditor against the defendant.
b. As expounded on in the 2004 decision, MPEI perpetrated a scheme against the
government to secure the automation contract by using MPC as a supposed bidder, and
eventually succeeded in signing the automation contract as MPEI alone, an entity
ineligible to bid in the first place. There was no mention in the contract at all of any
consortium or joint venture.
 c. Fraud was further shown by the fact that despite the failure of its machines of passing the
tests conducted by the DOST, MPEI still acceded to being awarded the automation
contract.
2. Application of the doctrine of piercing the corporate veil justifies the issuance of a writ of
preliminary attachment over the properties of the individual respondents.
a. Respondents: Since they were strangers to the 2004 case, they are not bound by the said
judgment.
b. SC: In the first place, it could not be reasonably expected that individual respondents
would be impleaded in the 2004 case. At any rate, they were fully afforded the right to
due process by being impleaded and heard in subsequent proceedings, and that that as
incorporators/stockholders, they remain vulnerable to the piercing of the corporate veil
of MPEI.
c. Veil-piercing in corporate cases requires that the legal fiction of separate juridical
personality is used for fraudulent or wrongful ends.
i. In the present case, there are signs that strongly indicate that MPEI was a sham
corporation formed merely for the purpose of perpetuating a fraudulent scheme,
namely: (1) overly narrow specifications (2) unjustified recommendations and
unjustified winning bidders (3) failure to meet the terms of the contract (4) shell
or fictitious company.
ii. Overly narrow specifications: rigged specifications that seem to be drafted in a
way that favors a particular company. In this case, the required 99.9995% set up
by COMELEC is too high and is a sure indication of fraud in the bidding,
designed to eliminate fair competition.
iii. Unjustified recommendations and unjustified winning bidders: MPC was actually
a non-entity and it was MPEI all along that actually participated in the bidding
process. Even during the bidding process itself, MPC never submitted documents
pertaining to the consortium. Yet MPC was awarded the bid, and the automation
contract was awarded to MPEI.
iv. Failure to meet contract terms: machines were below standard and that said
deficiencies in the machines were never cured as the machines were left in
storage.
v. Shell or fictitious company: MPEI qualifies as a shell or fictitious company. In
fact, it was incorporated only 11 days before the bidding. Its close nexus to the
date of the invitation to bid and the date of bidding provides a strong indicium of
the intent to use the corporate vehicle for fraudulent purposes.
d. The totality of the red flags found in this case leads to the inevitable conclusion that
MPEI was nothing but a sham corporation formed for the purpose of defrauding the
government. Based on the foregoing, veil-piercing is justified.
i. A corporation’s privilege of being treated as an entity distinct and separate
from its stockholders is confined to legitimate uses, and is subject to
equitable limitations to prevent its being exercised for fraudulent, unfair, or
illegal purposes. When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud or defend crime, the law will regard the
corporation as an association of persons.
 ii. The individual respondents never denied their participation in the transactions of
MPEI. They only raised the defense of good faith. Also, they were the
incorporators of MPEI. As such, they are expected to be involved in the
management of the corporations.
iii. It would be clear inequity if personal liability do not attach to all the individual
respondents. With the definite finding that the MPEI was used to perpetuate
fraud against the government, it would be a great injustice if the remaining
respondents would enjoy the benefits of incorporation despite the clear fining of
abuse of corporate vehicle.